In response to the initial imposition of tariffs, Trudeau said Canada would immediately respond with 25 percent tariffs on CA$30 billion (US$20.6 billion) of American exports, which would expand to CA$155 billion (US$106 billion) within three weeks. Sheinbaum said Mexico would enact tariffs and non-tariff economic retaliation against the United States. On February 3, both countries negotiated one-month tariff delays with the U.S. and agreed to increase security along their borders. The U.S. tariffs took effect as planned on March 4, with Canada's retaliatory tariffs beginning simultaneously.
Both Canada and Mexico have said that Trump's tariffs would violate the United States–Mexico–Canada free trade agreement ratified by the three countries in 2020 under Trump's first presidency. Economists have said that the tariffs would likely disrupt trade between the three countries, upend supply chains across North America, and increase consumer prices across the United States, Mexico, and Canada.
Trump has often spoke about the idea of Canadian annexation as an option for Canada to escape the tariffs, floating the idea of adding Canada as a 51st state.
The United States, Canada, and Mexico signed the North American Free Trade Agreement (NAFTA) in 1994, a free trade agreement that eliminated almost all tariffs on trade across the three countries.[3] NAFTA has been described as a source of political division.[4] In the U.S., it led to offshoring as U.S. companies relocated their businesses to Mexico for cheaper labor, harming American factory towns and workers. The backlash to free trade allowed candidates like Donald Trump to rise to prominence in U.S. politics. However, many parts of the U.S. benefitted from NAFTA's increased trade and economic activity.[5] In 2020, during Trump's first term as U.S. president, NAFTA was replaced by the United States–Mexico–Canada Agreement (USMCA), primarily because of Trump's disagreements with NAFTA.[3][6] The changes between NAFTA and the USMCA were largely cosmetic, and it maintained zero tariffs on most products traded across the U.S., Canada, and Mexico[7][8] though allowed certain tariffs to be imposed for national security matters.[9]
Even before NAFTA was applied, the U.S. and Canadian economies were highly integrated, especially in the car manufacturing sector.[3] In the first nine months of 2024, Canadian government data estimated that CA$800 billion (US$550 billion) of goods crossed the Canada–U.S. border.[9] As of November 2024, the U.S. government estimated the United States's trade deficit with Canada to be US$55 billion.[9] Trump has cited this trade deficit as an economic grievance against Canada.[10] This trade deficit is largely driven by American demand for Canadian oil; when oil exports are excluded, the U.S. has a trade surplus with Canada.[9] Roughly 60 percent of the oil imported by the U.S. is sourced from Canada,[11] and Canada is the U.S.'s largest supplier of steel.[12]
The economies of the United States and Mexico are highly intertwined.[5] In 2024, roughly US$800 billion of goods were transported across the Mexico–U.S. border, and over US$1 billion in commerce between the two countries occurs daily.[5] In 2023, U.S. exports to Mexico totaled US$322 billion, while the U.S. imported over US$475 billion of Mexican products, according to data from the U.S. Census Bureau.[13] Roughly 70 percent of Mexico's natural gas consumption comes from the U.S., and the U.S. imports about 700,000 barrels of crude oil from Mexico each day.[5] Food production between the two countries is also closely integrated: the U.S. sources roughly half of its fresh fruits and vegetables from Mexico, and Mexico is the top market for U.S. agricultural exports.[5] Mexico is the third-largest exporter of steel to the U.S., behind only Canada and Brazil;[12] both Mexico and the U.S. have been accused of violating an agreement signed alongside the USMCA to limit steel exports between each other. Some Americans, including Trump, have said that Mexico has exceeded the level of exports allowed under the agreement. At the same time, a Mexican steel organization reported that the level of U.S. steel exports also breached the deal.[5]
Political background
First Trump administration
During his first term, Trump threatened tariffs on Mexico if it did not end illegal immigration to the United States across the U.S.–Mexico border and repeatedly threatened to withdraw from NAFTA.[5] However, he ultimately did not impose tariffs on Mexico after it agreed to create the Mexican National Guard, send 6,000 troops to fight illegal immigration, and allowed the U.S. to expand its "remain in Mexico" policy, which forced certain asylum seekers to stay in Mexico until the U.S. processed their asylum claim.[5][14] Trump pressured Canada and Mexico to renegotiate NAFTA by threatening aggressive import tariffs,[15] and in May 2018, he extended the U.S.'s global tariffs on steel and aluminum to the two countries, inviting them both to retaliate.[16] The three countries agreed to lift the steel and aluminum tariffs in May 2019, one year after they had begun,[17] prior to the USMCA taking effect on July1, 2020.[18] One month after the USMCA entered force, Trump said that aluminum imports constituted a national security threat that endangered U.S. producers and imposed 10 percent tariffs on Canadian aluminum.[18] Trump ended the tariffs the next month ahead of Canada's planned retaliation.[19]
In 2018 and 2019, Trump also placed major tariffs on China, totaling about US$80 billion of tariffs on about US$380 billion of products, which were largely kept in place by the subsequent administration of Joe Biden.[6] The U.S. government has been concerned over China–Mexico trade, particularly in the automotive sector, because it fears that Chinese companies can use Mexico to export to the United States, circumventing tariffs on China and taking advantage of the USMCA.[5] From October 2023 to October 2024, U.S. authorities apprehended 23,000 people illegally crossing across its northern border from Canada and 1.5million people illegally crossing its southern border from Mexico.[20]
Canadian politics
In November 2024, after winning the U.S. presidential election, Trump threatened 25 percent tariffs on all products from Canada and Mexico, which he said would "remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop this invasion of our country."[21] Shortly after, Canadian prime minister Justin Trudeau traveled to Trump's estate in Florida to speak with him and discuss the tariffs, as well as illegal immigration and drug smuggling across the Canada–U.S. border.[22]
On December16, Canada announced a plan to spend CA$1.3 billion (US$913 million) on border security to allay Trump's concerns.[23] The plan included the creation of a joint U.S.–Canada "strike force" intended to combat transnational crime.[24]Doug Ford, the premier of Ontario and head of the Council of the Federation, called a snap provincial election to be held on February 27, saying that he wanted his Progressive Conservative Party of Ontario to have a stronger mandate to oppose Trump's impending tariffs on Canada.[9] In January 2025, Trudeau declared his intention to resign as Liberal Party leader and prime minister once a new leader is chosen on March 9.[25] On January 31, Trudeau said on social media that Canada was "ready with a forceful and immediate response" if the U.S. moved ahead with its decision to impose tariffs on Canadian exports.[11]
During his inaugural address on January 20, 2025, at the beginning of his second term, Trump said he would enact steep tariffs on other countries. He said that "Instead of taxing our citizens to enrich other countries," the U.S. would "tariff and tax foreign countries to enrich our citizens."[4] Trump said that both Canada and Mexico are allowing "mass numbers of people to come in and fentanyl to come in" to the U.S. across their borders[11] while also saying that both countries were unfairly profiting from the United States's trade deficits.[6][8] He has criticized the United States's trade deficit with Canada while citing inaccurate figures that claim it to be as much as US$200 billion.[9] Even after Trump declared his intent to impose imminent tariffs on Canada and Mexico, U.S. companies did not make any concerted effort to import large amounts of goods to the United States before their enactment.[26]
The tariffs against Canada have also been tied to Trump's repeated calls for the annexation of Canada to the United States.[27][10][28] Before taking office, he declared his intent to use "economic force" to attempt to annex Canada.[29] He has repeatedly said that Canada could avoid tariffs by becoming the 51st U.S. state, including in a speech at the World Economic Forum.[30][31][32] Trudeau has said the annexation comments should be taken seriously as a threat against Canadian sovereignty.[33]
On February 1, 2025, Trump signed three executive orders imposing 25 percent tariffs on all goods from Mexico and Canada[6] except for Canadian oil and energy exports, which received a 10 percent tariff.[8][11] Mexican energy exports will receive the full 25 percent tariff.[34] The orders were issued under the International Emergency Economic Powers Act (IEEPA) and were set to take effect at 12:01a.m. Eastern Standard Time on February 4.[11] Trump also ordered 10 percent tariffs on China, which would be imposed in addition to the existing tariffs of up to 25 percent on many Chinese goods.[8] The orders included a clause allowing the U.S. to increase its tariffs if the countries respond with their own tariffs or other retaliatory measures.[11]
Trump used the IEEPA to circumvent the USMCA's tariff restriction in cases other than national emergencies.[9] He cited both the influx of illegal immigrants crossing the United States's borders with both Mexico and Canada, as well as the opioid epidemic in the United States fueled by fentanyl originating in China reaching the U.S. through Mexico and Canada.[6][8][11][35] In the executive order, he said that Canada has played a "central role" in allowing fentanyl to enter the U.S. and that it has failed to "devote sufficient attention and resources or meaningfully coordinate" with the U.S. to "stem the tide of illicit drugs," despite the vast majority of fentanyl in the U.S. coming from the southern border with Mexico.[6][9] The tariffs are also aimed at incentivizing manufacturers to hire Americans to make their products in the U.S. instead of importing them from other countries.[8] In later remarks, Trump repeated his hope for Canada to be annexed by the United States as its "51st state".[36][37]
According to Bloomberg News, Trump advisors Peter Navarro and Stephen Miller were the leading officials in the economic discussions regarding the imposition of tariffs, while China was included at the urging of the National Security Council.[38] In a post on Truth Social, Trump said: "We need to protect Americans, and it is my duty as president to ensure the safety of all. I made a promise on my campaign to stop the flood of illegal aliens and drugs from pouring across our borders, and Americans overwhelmingly voted in favor of it." While he acknowledged that the tariffs could cause "temporary short-term disruption," he said that they needed to be imposed. Trump also claimed that "Tariffs don't cause inflation" but rather that "They cause success."[6]
Hours after Trump imposed the tariffs on February 1, Trudeau said that Canada would retaliate against the United States with tariffs.[3][9] He said that Canada would impose 25 percent tariffs on CA$30 billion (US$20.6 billion) of American exports immediately after the U.S. tariffs take effect and impose 25 percent tariffs on a further CA$125 billion (US$86 billion) worth of goods in the next three weeks.[6][25] Trudeau said that the delay would allow Canadian businesses to prepare.[25] He added that Canada was considering more retaliatory trade action in addition to tariffs to force Trump to end the trade war, including export restrictions on critical minerals and energy products or a block on American companies bidding on government contracts.[9]
Trudeau said that American liquor, vegetables, clothing, shoes, and perfume would be among the first to face retaliatory tariffs and that tariffs on consumer goods such as household appliances, furniture, and sports equipment would also be imposed.[9] Canada's retaliation is aimed particularly at "red states" of the U.S., led by Trump's Republican Party.[25] In his speech, Trudeau presented data showing that only about 1 percent of fentanyl imports and illegal border crossings to the United States come from its border with Canada.[25] He called the U.S.–Canada relationship "the most successful partnership the world has ever seen" across all domains[25] and accused Trump's tariffs of violating the USMCA.[6] He also said that the tariffs endanger American consumers and industries,[6] calling Canadians to "choose Canadian products and services rather than American ones" wherever possible.[6][9] Trudeau stated: "This is a choice that, yes, will harm Canadians, but beyond that, it will have real consequences for you, the American people. As I have consistently said, tariffs against Canada will put your jobs at risk, potentially shutting down American auto assembly plants and other manufacturing facilities."[39][40]
Canada's premiers also responded. Ontario premier Ford said that Canada has "no choice but to hit back and hit back hard"[9] and ordered the Liquor Control Board of Ontario to end sales of American alcohol.[41]Alberta premier Danielle Smith, who had until then been opposed to aggressive trade action against the United States, said Canada needed to respond to Trump's "mutually destructive policy" and that she supports "the strategic use" of tariffs on U.S. goods "that are more easily purchased from Canada and non-U.S. suppliers."[9] Premier François Legault of Quebec said he ordered Treasury Board president Sonia LeBel to "review all procurement contracts involving American suppliers" and penalize any that do business with Quebec's government.[42] He also directed the Société des alcools du Québec to remove all American products from its shelves.[43]
In Nova Scotia, Premier Tim Houston said the province will double highway tolls for U.S. vehicles and direct the Nova Scotia Liquor Corporation to stop selling all U.S. liquor by February 4.[9]Northwest Territories premier R.J. Simpson also announced that his government would review its procurement policies to eliminate purchases from U.S. companies where possible.[44] Premier Wab Kinew of Manitoba and Premier Dennis King of Prince Edward Island both said that their provinces would stop importing American liquor,[45][46] while British Columbia premier David Eby said the BC Liquor Distribution Branch would halt liquor purchases from Republican-led states.[47]Yukon premier Ranj Pillai said his territory's government would halt orders of U.S. alcohol, review its contracts with U.S. companies, and consider tolls on U.S. vehicles, but later said the measures would be put on hold until tariffs came into effect.[48]
Pierre Poilievre, the leader of the opposition Conservative Party, condemned what he called "massive, unjust and unjustified tariffs." He urged that the government end the current prorogation of parliament to retaliate with measures including dollar-for-dollar tariffs on U.S. goods that he said would raise money to help "affected workers and businesses." He also repeated his demand for a "massive" tax cut and other efforts to bolster the economy.[9]
Mexican president Claudia Sheinbaum said that Mexico would implement tariff and non-tariff retaliatory measures against the United States.[6] She said the retaliation was "in defense of Mexico's interests".[13] While Sheinbaum did not specify which U.S. goods Mexico's retaliation would target, media reports claimed that Mexico had been preparing possible retaliatory tariffs ranging from 5 percent to 20 percent on pork, cheese, produce, steel, and aluminum and that the automotive industry would initially be exempt.[13]
Marcelo Ebrard, the federal secretary of economy, called Trump's tariffs a "flagrant violation" of the USMCA.[49] Sheinbaum also responded to Trump's claim that the Mexican government has an alliance with the Mexican drug cartels, calling it "slander".[6] At an event on February 1, she said Mexico would keep a "cool head" in proceeding with its retaliations, and she proposed establishing a task force with the U.S. to address Trump's issues with Mexico and said that "problems are not resolved by imposing tariffs".[6]
One-month delay
On February 3, 2025, Sheinbaum and Trump mutually agreed to delay the tariffs on Mexico by one month.[50] Sheinbaum accepted sending 10,000 troops from the Mexican National Guard to their border to prevent drug trafficking. Trump said the U.S. had pledged to take measures to curb weapons trafficking to Mexico.[50][51] The same morning, Trump spoke to Trudeau. During their call, he introduced concerns that Canada was not allowing U.S. banks to "open or do business there"; Canada allows American banks to operate commercially in the country but had restricted personal banking to protect its citizens from bank failure.[52] In a second call that day, Trump and Trudeau negotiated a one-month tariff delay. Canada agreed to appoint a "fentanyl czar", list Mexican drug cartels as terrorists, and create an intelligence directive targeting fentanyl and organized crime supported by CA$200 million (US$140 million) in funding. Trudeau also said that Canada would implement its CA$1.3 billion (US$913 million) border program and establish a Canada–United States Joint Strike Force to combat organized crime, fentanyl, and money laundering.[53] Trump then issued an updated executive order changing the start date of the tariffs to March 4 at 12:01a.m. Eastern Time.[54] On February 11, Canada appointed Kevin Brosseau, Trudeau's former deputy national security advisor and a former Royal Canadian Mounted Police senior, as the fentanyl czar.[55]
Subsequent events
On February 7, Trudeau was caught on tape in a private meeting expressing his belief that Trump's annexation threats were "a real thing" and that he may be pursuing Canada's mineral resources.[27][56] Meanwhile, Trump clarified that his threats towards Canadian annexation were indeed serious in an nationally televised interview with Bret Baier of Fox News during Super Bowl LIX.[10]
On February 10, 2025, Trump imposed 25 percent tariffs on steel and aluminum entering the United States from all countries, including Canada and Mexico, which provide most of the U.S.'s metal imports.[12] The steel and aluminum tariffs are set to enter force on March 12.[57] Trump said those tariffs were "the first of many", and that over the next four weeks, he would discuss tariffs on cars, pharmaceuticals, chips, and other goods with his team.[12] In response, Trudeau called the tariffs "unacceptable" and said he hoped talks with the Trump administration would resolve the issue, but that Canada will have a "firm and clear" response if needed.[57] Shares of U.S. steelmakers rose in response to Trump's order, while prices for steel and aluminum rose.[57]
Imposition of tariffs
On March 3, Trump announced that the tariffs delayed for a month in February would indeed take effect on March 4. He added that there was "no room left" for Canada or Mexico to negotiate a last-minute deal with the United States to delay them further.[58][59]Howard Lutnick, the U.S. secretary of commerce, said that both Canada and Mexico had made progress on improving border security but that both countries had not satisfied the U.S.'s demands to halt the flow of fentanyl into the United States.[59] Trump's announcement, as well as the increase of tariffs on China from 10 percent to 20 percent set to take place the same day, caused the U.S. stock market to drop considerably: the S&P 500 index fell by 1.8 percent, while the Nasdaq-100 index fell by 2.6 percent.[60][61] Canadian foreign minister Mélanie Joly said that Canada was prepared to respond. Sheinbaum reaffirmed that Mexico's prior response plans would take effect when Trump imposed tariffs.[59]
U.S. tariffs on Canada and Mexico began as scheduled, at 12:01a.m. Eastern Time on March 4.[62] Canada's retaliation began simultaneously, with 25 percent tariffs on CA$30 billion (US$20.6 billion) of U.S. goods taking effect on March 4, while Trudeau affirmed that 25 percent tariffs on an additional CA$125 billion (US$86 billion) of U.S. goods would take effect 21 days later, on March 25.[63] Sheinbaum said that she would announce Mexico's countermeasures, including retaliatory tariffs, on March 9.[64]
In a news conference on March 4, Trudeau said that Trump sought to impose tariffs because he wished for "a total collapse of the Canadian economy" in order to "make it easier" for the U.S. to annex Canada.[65]
Reactions and responses
In Canada, the United States tariffs and threats caused an increase in Canadian nationalism and patriotism,[66][67] as well as anti-Americanism.[68] The conflict has been said to have harmed the historically strong Canada–U.S. relations.[68] A February 2025 poll of Canadians conducted by the Angus Reid Institute found that 91 percent of Canadians expressed a desire to decrease Canada's reliance on the U.S. as a trade partner.[66] The survey also revealed an increase of 10 percentage points in Canadians saying they are "very proud" of their country and in Canadians who said they have a "deep emotional attachment to Canada" compared to the institute's previous survey in December 2024.[67] An Ipsos poll in February 2025 found that 65 percent of Canadians said they would avoid traveling to the United States and 67 percent said they would avoid purchasing U.S.-made products.[69] A poll by Léger in the same month found that 27 percent of Canadians considered the United States an "enemy", while only 1 percent of Americans considered Canada an enemy.[70]
In Mexico, both the Mexican government and Mexican businesses aimed to bolster a "Made in Mexico" campaign to promote domestic products.[73] Some Mexicans called for boycotts of U.S. products after Trump's initial threat of tariffs,[74] and a poll by the Mexican firm Buendía & Marquéz found that 80 percent of Mexicans had a negative opinion of Trump in mid-February 2025, an increase from 66 percent in early January.[73]
In the United States, Trump's initial decision to impose tariffs on Canada and Mexico was criticized by the editorial board of The Wall Street Journal which said that his "justification for this economic assault on the neighbors makes no sense" and characterized the resulting conflict as "the dumbest trade war in history."[75] Trump's tariff policy in general raised questions about whether he has a serious intent to impose tariffs or whether his tariff orders are threats intended to serve as a negotiation tactic.[57]
Prospective economic impact
The trade war is expected to significantly disrupt trade between the United States, Mexico, and Canada and upend supply chains across North America.[8][25] Many economists have expressed skepticism over the effectiveness of Trump's strategy in imposing tariffs,[8] and many have said that increased tariffs would raise the prices of consumer goods in the U.S. and worsen the country's cost-of-living crisis.[6] The Budget Lab at Yale University estimated that the tariffs would lead to a loss of about US$1,200 in purchasing power for the typical American household.[8] While some companies will opt to bear the cost of the tariff, others are likely to raise prices on consumer products to offset lost revenue or attempt to negotiate lower prices for their products.[11]
Because the United States does not produce enough oil to satisfy its demand, 10 percent tariffs on Canadian oil and energy will likely lead to an increased oil price across the United States.[5][9][76] This is especially true in the Midwest, a region heavily reliant on oil imported from Alberta.[9][11] The Canadian government had previously said that U.S. gas prices could increase by US$0.75 per gallon overnight if tariffs were imposed.[9] Tariffs could also increase the cost of electricity in some U.S. states, especially those that rely on Canadian provinces like Ontario, Quebec, and British Columbia for energy.[9] Outside North America, tariffs on energy imports would give European and Asian oil refineries a competitive advantage against their rivals.[34]
The tariffs could also lead to price increases in various U.S. imports from Mexico and Canada, including fruits, vegetables, beer, liquor, and electronics from Mexico and potatoes, grains, lumber, and steel from Canada.[9][76] Price increases would compound with high inflation in the U.S., especially in grocery prices.[76] The cost of Canadian lumber, used by many homebuilders in the U.S., would also likely increase.[9] The tariffs would also cause risk to the U.S. farming and fishing industries.[11]
The tariffs pose a risk of "severe recession" in Mexico if maintained.[6] A year-long 25 percent tariff could cause Mexican exports to fall by around 12 percent, ultimately leading to a 4 percent decline in the country's gross domestic product in 2025.[13] The American Chamber of Commerce in Mexico, the group representing U.S. companies in the country, said tariffs would harm both economies and "fail to address the real challenges of security, migration and drug trafficking."[6] The Mexican automobile industry is likely to be most susceptible to upheaval from the tariffs, alongside the electric equipment sector.[8][11]
Canada, a highly trade-dependent economy, will also likely suffer, experiencing harmed economic growth and increased prices for businesses and consumers.[3] The Canadian economy could enter a recession within six months if the tariffs are maintained.[71] Quebec premier Legault said that the U.S. tariffs could cause the loss of as many as 100,000 Canadian jobs within the province.[42] Prices could also increase in Canada for even domestically produced products, especially if the tariffs cause economic difficulties for smaller businesses.[3] Canadian companies being unable to sell their products to Americans at the same volume would also cause some of them to cut workers, scale back, or even shut down entirely.[9] Canada's mineral processing industry will likely be significantly harmed by the tariffs.[11]
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